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Weekend June 15th , 2013
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UNSOUND MONEY Inevitably Means A CORRUPT SOCIETY 34 Minutes, 34 Slides
What Are Tipping Poinits? |
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"BEST OF THE WEEK " |
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Labels & Tags | TIPPING POINT or 2013 THESIS THEME |
HOTTEST TIPPING POINTS |
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We post throughout the day as we do our Investment Research for: LONGWave - UnderTheLens - Macro Analytics |
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BOND PANIC - Nearlng Completion |
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JAPAN - ABE (Asset Bubble Evaluator) Index Credit Suisse Created An 'Asset Bubble Evaluator' Index In Honor Of The Prime Minister Of Japan 06-14-13 Credit Suisse via BI
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06-15-13 | JAPAN MONETARY |
2 - Japan Debt Deflation Spiral |
BONDS - Reactive Panic Mode to TAPER US Bonds In "Panic" Mode 06-13-13 Credit-Suisse vai ZH Based on Credit-Suisse's Panic-Euphoria model of risk appetite, US bond markets are on the verge of the short-term capitulative "Panic" mode. Each time we have reached this level of 'selling' in the last 6 years, Treasury yields have compressed significantly. At the same time, equity risk appetite remains bearish and US credit risk appetite has resumed its decline (but relative to Treasuries they are significantly over-sold). Not a pretty picture... Bonds hit "Panic" levels of risk appetite... but Equity risk appetite drifts bearishly... and Credit risk appetite signficantly weaker... but the sell-off in High-Grade and High-Yield bonds has been remarkable relative to historical precedent... As Citi notes, Investors fear the 1994 redux trade, are looking at ways to short markets that may be vulnerable to rising rates, including credit. But in total return terms the credit space has already suffered quite dramatically. The chart below shows that the high-grade and high-yield markets are down 3.2% and 1.7%, respectively, since the Treasury backup began in early May, which is far more severe than what normally occurs when rates rise (annualized long-term average of +0.1% and +11.4%, respectively). It may not be fully priced in yet, but at this point the rates trade may really boil down to how quickly Treasury yields rise further. Charts: Credit Suisse and Citi |
06-15-13 | US ANALYTICS BOND |
3- Bond Bubble |
CHINA - Potentially De-Stabilizing Cash Crunch China's Cash Crunch 06-14-13 WSJ A surge in money-market rates points to growing stress in China's financial sector. The overnight borrowing rate in China's money markets rose to 9.6% last week, a record high, and was still high at 7% as of Friday. The sharp increase reflects problems with liquidity management caused by China's overextended banks and growing wealth-management sector. With a weak branch franchise, China's small banks are perennially starved of deposits. Wealth-management products—short-term investments that offer some of the security of a deposit but higher returns—help them attract funds to expand their business. WMPs grew to 7.1 trillion yuan at the end of 2012, from virtually nothing a few years ago. So far, so good. But with a mismatch between short-term liabilities and long-term assets in WMPs, banks are sometimes forced to tap the money market for funds to repay investors. One measure of that is turnover in the money market, which more than tripled from 2007 to 2012 according to data from the People's Bank of China. The surge in money-market rates isn't driven solely by the growth of WMPs. Tax season and a three-day holiday, both of which add to demands on liquidity, also played a part. Capital inflows may also have slowed, reflecting growing risk aversion in global markets. Rumors of a money-market default also pushed rates higher. Nor does the surge represent an imminent crisis for China's financial system. With 19 trillion yuan in deposits held in reserve, China's central bank has ample resources to ease liquidity constraints if it wishes. If sharply higher borrowing costs in the money market encourage China's banks to manage their balance sheets more conservatively, it could even be a positive. But with concerns about China's growth are mounting, a cash crunch in the financial system—which drives up the cost of borrowing—isn't well-timed. And with slowing growth adding to existing strains on China's overstretched financial system, the current surge in money-market rates likely won't be the last.
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06-15-13 | CHINA | 6 - China Hard Landing |
EMERGING MARKETS - The Impact of "TAPER" Can The World Afford Higher Interest Rates? 06-14-13 James Gruber, Asia Confidential That’s the end of QE tapering talk then? Not quite, but it should die down somewhat, give U.S. Fed Reserve conduit Jon Hilsenrath’s latest kiss-and-tell article in The Wall Street Journal. Thankfully, it might also stop all the blather about the U.S. and global economies recovering (they’re not) and this being the end of the bond bull market (premature). What most investors fail to realise is that developed markets, including the U.S., simply can’t afford a normalisation in interest rates: higher rates on government debt would crush their economies. This means QE tapering is highly unlikely and the current money printing experiment will only end when investors lose faith in government bonds. Where getting closer to that end game, but we’re not there yet. If the above is right, we may be in for a prolonged period of volatility where investors expect QE to be cut back, it may indeed get cut back at some point, only to increase again when it’s recognised that any normalisation in interest rates will create huge problems. For emerging markets such as Asia, it’ll mean increased volatility, although I’d argue the past week’s stock market moves are reverting back to normal from an abnormally tranquil period over the past 3-4 years. This will create some opportunities, but be aware that the odds still favour a bond market crash at a later date. What’s behind the past week’s action? Cutting back on QE would mean reducing the printed money that the Fed has been using to buy bonds. That would result in less liquidity, less money in the financial system. The printed money has helped support asset prices, particularly stock and bond markets. Less liquidity would reduce this support. Much of the printed money had leaked into areas offering the best growth prospects, primarily emerging markets such as Asia. This led to some spectacular stock market performance, especially in South-East Asia. Naturally, talk of QE cutbacks hit the best performing, less liquid markets such as Thailand, the Philippines and Indonesia especially hard. Japan is another matter. Stimulus equivalent to 3x the U.S. as a proportion of GDP and an inflation target of 2% has resulted in manic action across Japan’s stock, bond and currency markets. The yen has snapped back after being oversold, but remains extremely vulnerable given the stimulus policies of the Bank of Japan (BoJ). Meantime, Japan’s bond market has investors fleeing due to a 2% inflation target almost guaranteeing them large losses and a central bank intent on keeping yields low to prevent interest being paid on government debt spiralling out of control. Investors are starting to realise that the government may not win this battle. There is an alternative view: that the reason for the recent Japanese volatility is that the BoJ is backing away from its inflation target and stimulus efforts. It’s a laughable notion put forward by seemingly respectable commentators (see here). It ignores the fact that if the BoJ’s efforts succeed, rising inflation will eventually lead to rising bond yields and interest rates, which will kill the Japanese economy (see here for my previous article on this). Later in the week, of course, the Fed came to the market’s rescue. Via its Wall Street Journal mouthpiece Jon Hilsenrath, the Fed essentially tip-toed back from earlier suggestions that it would soon reduce QE. Here’s what Hilsenrath had to say: “The chatter about pulling back the bond program has pushed up a wide range of interest rates and appears to have investors second-guessing the Fed’s broader commitment to keeping rates low. This is exactly what the Fed doesn’t want. Officials see bond buying as added fuel they are providing to a limp economy. Once the economy is strong enough to live without the added fuel, they still expect to keep rates low to ensure the economy keeps moving forward.” Below is the U.S. 10 year government bond yield, courtesy of Yahoo. The maths against higher rates To answer this question, let’s crunch some numbers. Bond guru Jeff Gundlach has looked at the impact of higher rates on the U.S. and he doesn’t like what he sees. He suggests that if interest rates in the U.S. normalise and increase 100 basis points annually over the next five years, the interest expense on government debt would rise from US$360 billion last year to US$1.51 trillion. To put this into perspective, the recent U.S. government cutbacks which many worried would tip the economy into recession totalled just US$85 billion. Any normalisation in rates would result in brutal cutbacks to government programs, seriously impacting the economy. For another example, we can look at Japan. As I’ve stated on many occasions, if rates rise to just 2.8%, interest on Japanese government debt would be the equivalent of 100% of government revenues. The implications of higher bond yields and higher interest rates would go well beyond government debt though. Other countries with fewer government debt issues would suffer too. For instance, my native Australia is relying on the property sector (a bubble slowly deflating) to pick up some of the slack from a mining sector which is getting hammered by a slowing China. Any rise in Aussie rates would quash any hopes of a housing recovery (even if it was highly unlikely to happen anyway). In Asia, a normalisation in rates would have a broader impact. Higher rates and tighter money would hit elevated asset markets across the board, including the stock, bond and property markets. Those which have benefited most from the low rates and subsequent money inflows, such as South East Asia, would be hurt most. In effect, the past week would be a taste of things to come. A bond crash will have to wait Central banks can keep this game going for a long time, but there will come a point when the bond markets will say enough is enough. As I wrote in an article on Japan recently: “In many respects, Japan is the template for what’s to come in other developed markets. After an enormous credit bubble which burst in 1990, Japan has refused to restructure its economy in order for it to grow in a sustainable manner. Instead, it’s chosen the less painful route of printing money to try to revive the economy and reduce debts in yen terms… … The trouble with this is that there comes a point where bond investors lose confidence in the ability of the government to repay the money. These investors then refuse to rollover government debt at low rates. When bond markets dry up, they normally do so quickly. The current wobbles in the Japanese bond market can be seen as a prelude to this endgame. Though Japan has escaped its day of reckoning for a long time, other developed markets are unlikely to be as lucky, given the extent of their indebtedness and continued commitment to flawed policies.” What it means for Asia The reason that I say this is that when I worked in South-East Asia for three years (2006-2009), the volatility experienced during recent weeks was the norm rather than the exception. And colleagues back then who’d been through the Asian crisis thought that I’d experienced little of the volatility that South-East Asia had to offer! The recent volatility though is likely to become the norm again. Any hint of less QE will see hot money leave Asia, only to come back when it becomes clear that stimulus should be here to stay. Last week, I suggested the rout in emerging markets would soon result in some opportunities in Asia. I didn’t expect the rout to become an avalanche so soon, however. There was some pushback to one of my top picks being the Indian market (Indian friends and subscribers seem to be the most pessimistic about their country’s prospects!), particularly as the rupee hit all-time lows versus the U.S. dollar. If my thesis on QE tapering being a head fake is correct, then the rupee should stage a short-term rebound. As for the many problems that India faces, such as the current account deficit, I do acknowledge that the country still has significant issues. The question is whether these problems are well-known and factored into the stock market. I’d suggest that they largely are and the incremental positives mentioned last week are not. As for the other potential opportunity which I identified, Thailand, it’s been getting pummelled as per other South-East Asian countries. Keep in mind though that the country is in the best shape that it’s been in a long time. Thailand has a stable government, strong investment cycle, positive policies such as redistributing incomes from the capital to rural areas as well as battle-hardened companies who’ve seen politicians and crises come and go. Combined with reasonable valuations, particularly among bank and energy stocks, Thailand stands out as a sound, long-term investment story. |
06-15-13 | MACRO MONETARY |
MACRO ECONOMICS |
CRONY CAPITALISM - How America Lost its Way! How America Lost Its Way 06-07-13 Niall Ferguson, WSJ It is getting ever harder to do business in the United States, argues Niall Ferguson, and more stimulus won't help: Our institutions need fixing. Not everyone is an entrepreneur. Still, everyone should try—if only once—to start a business. After all, it is small and medium enterprises that are the key to job creation. There is also something uniquely educational about sitting at the desk where the buck stops, in a dreary office you've just rented, working day and night with a handful of employees just to break even. As an academic, I'm just an amateur capitalist. Still, over the past 15 years I've started small ventures in both the U.S. and the U.K. In the process I've learned something surprising: It's much easier to do in the U.K. There seemed to be much more regulation in the U.S., not least the headache of sorting out health insurance for my few employees. And there were certainly more billable hours from lawyers. This set me thinking. We are assured by vociferous economists that economic growth would be higher in the U.S. and unemployment lower if only the government would run even bigger deficits and/or the Fed would print even more money. But what if the difficulty lies elsewhere, in problems that no amount of fiscal or monetary stimulus can overcome? Nearly all development economists agree that good institutions—legislatures, courts, administrative agencies—are crucial. When poor countries improve their institutions, economic growth soon accelerates. But what about rich countries? If poor countries can get rich by improving their institutions, is it not possible that rich countries can get poor by allowing their institutions to degenerate? I want to suggest that it is. Consider the evidence from the annual "Doing Business" reports from the World Bank and International Finance Corporation. Since 2006 the report has published data for most of the world's countries on the total number of days it takes to start a business, get a construction permit, register a property, pay taxes, get an export or import license and enforce a contract. If one simply adds together the total number of days it would take to carry out all seven of these procedures sequentially, it is possible to construct a simple measure of how slowly—or fast—a country's bureaucracy moves. Seven years of data suggest that most of the world's countries are successfully making it easier to do business: The total number of days it takes to carry out the seven procedures has come down, in some cases very substantially. In only around 20 countries has the total duration of dealing with "red tape" gone up. The sixth-worst case is none other than the U.S., where the total number of days has increased by 18% to 433. Other members of the bottom 10, using this metric, are Zimbabwe, Burundi and Yemen (though their absolute numbers are of course much higher). Why is it getting harder to do business in America? Part of the answer is excessively complex legislation. A prime example is the 848-page Wall Street Reform and Consumer Protection Act of July 2010 (otherwise known as the Dodd-Frank Act), which, among other things, required that regulators create 243 rules, conduct 67 studies and issue 22 periodic reports. Comparable in its complexity is the Patient Protection and Affordable Care Act (906 pages), which is also in the process of spawning thousands of pages of regulation. You don't have to be opposed to tighter financial regulation or universal health care to recognize that something is wrong with laws so elaborate that almost no one affected has the time or the will to read them. Who benefits from the growth of complex and cumbersome regulation? The answer is: lawyers, not forgetting lobbyists and compliance departments. For complexity is not the friend of the little man. It is the friend of the deep pocket. It is the friend of cronyism. We used to have the rule of law. Now it is tempting to say we have the rule of lawyers, which is something different. For the lawyers can also make money even in the absence of complex legislation. It has long been recognized that the U.S. tort system is exceptionally expensive. Indeed, tort reform is something few people will openly argue against. Yet the plague of class-action lawsuits continues unabated. Regular customers of Southwest Airlines recently received this email: "Did you receive a Southwest Airlines drink coupon through the purchase of a Business Select ticket prior to August 1, 2010, and never redeem it? If yes, a legal Settlement provides a Replacement Drink Voucher, entitling you to a free drink aboard a Southwest flight, for every such drink coupon you did not redeem." This is not the product of the imagination of some modern-day Charles Dickens. It is a document arising from the class-action case, In re Southwest Airlines Voucher Litigation, No. 11-cv-8176, which came before Judge Matthew F. Kennelly of the District Court for the Northern District of Illinois. As the circular explains: "This Action arose out of Southwest's decision, effective August 1, 2010, to only accept drink coupons received by Business Select customers with the purchase of a Business Select ticket on the date of the ticketed travel. The Plaintiffs in this case allege Southwest, in making that decision, breached its contract with Class Members who previously received drink coupons," etc. As often happens in such cases, Southwest decided to settle out of court. Recipients of the email will have been nonplused to learn that the settlement "will provide Replacement Drink Vouchers to Class Members who submit timely and valid Claim Forms." One wonders how many have bothered. Cui bono? The answer is, of course, the lawyers representing the plaintiffs. Having initially pitched for "up to $7 million in fees, costs and expenses," these ingenious jurists settled for fees of $3 million "plus costs not to exceed $30,000" from Southwest. Canada's Fraser Institute has been compiling an "Economic Freedom" index since 1980, one component of which is a measure of the quality of a country's legal system and property rights. In the light of a case like the one described above, there is nothing surprising about the recent decline in U.S. performance. In 2000 U.S. law scored 9.23 out of 10. The most recent score (for 2010) was 7.12. Such indexes must be used with caution, but the Fraser index is not the only piece of evidence suggesting that the rule of law in the U.S. is not what it was. The World Justice Project uses a completely separate methodology to assess countries' legal systems. The latest WJP report ranks the U.S. 17th out of 97 countries for the extent to which the law limits the power of government, 18th for the absence of corruption, 19th for regulatory enforcement, 22nd for access to civil justice and the maintenance of order and security, 25th for fundamental rights, and 26th for the effectiveness of criminal justice. Of all the former British colonies in the report, the U.S. ranks behind New Zealand, Australia, Singapore, Canada, Hong Kong and the United Kingdom—though it does beat Botswana. The decline of American institutions is no secret. Yet it is one of those strange "unknown knowns" that is well documented but largely ignored. Each year, the World Economic Forum publishes its Global Competitiveness Index. Since it introduced its current methodology in 2004, the U.S. score has declined by 6%. (In the same period China's score has improved by 12%.) An important component of the index is provided by 22 different measures of institutional quality, based on the WEF's Executive Opinion Survey. Typical questions are "How would you characterize corporate governance by investors and boards of directors in your country?" and "In your country, how common is diversion of public funds to companies, individuals, or groups due to corruption?" The startling thing about this exercise is how poorly the U.S. fares. In only one category out of 22 is the U.S. ranked in the global top 20 (the strength of investor protection). In seven categories it does not even make the top 50. For example, the WEF ranks the U.S. 87th in terms of the costs imposed on business by "organized crime (mafia-oriented racketeering, extortion)." In every single category, Hong Kong does better. At the same time, the U.S. has seen a marked deterioration in its World Governance Indicators. In terms of "voice and accountability," "government effectiveness," "regulatory quality" and especially "control of corruption," the U.S. scores have all gone down since the WGI project began in the mid-1990s. It would be tempting to say that America is turning Latin, were it not for the fact that a number of Latin American countries have been improving their governance scores over the same period. What is the process at work here? Perhaps this is a victory from beyond the grave for classical Western political theory. Republics, after all, were regarded by most ancient political philosophers as condemned to decadence, or to imperial corruption. This was the lesson of Rome. Democracy was always likely to give way to oligarchy or tyranny. This was the lesson of the French Revolution. The late Mancur Olson had a modern version of such cyclical models, arguing that all political systems were bound to become the captives, over time, of special interests. The advantage enjoyed by West Germany and Japan after World War II, he suggested, was that all the rent-seeking elites of the pre-1945 period had been swept away by defeat. This was why Britain won the war but lost the peace. Whatever the root causes of the deterioration of American institutions, smart people are starting to notice it. Last year Michael Porter of Harvard Business School published a report based on a large-scale survey of HBS alumni. Among the questions he asked was where the U.S. was "falling behind" relative to other countries. The top three lagging indicators named were: the effectiveness of the political system, the K-12 education system and the complexity of the tax code. Regulation came sixth, efficiency of the legal framework eighth. Asked to name "the most problematic factors for doing business" in the U.S., respondents to the WEF's most recent Executive Opinion Survey put "inefficient government bureaucracy" at the top, followed by tax rates and tax regulations. All this should not be interpreted as yet another prophecy of the imminent decline and fall of the U.S., however. There is some light in the gloom. According to the most recent United Nations projections, the share of the U.S. population that is over 65 will reach 25% only at the very end of this century. Japan has already passed that milestone; Germany will be next. By midcentury, both countries will have around a third of their population age 65 or older. More imminently, a revolution in the extraction of shale gas and tight oil, via hydraulic fracking, is transforming the U.S. from energy dependence to independence. Not only could the U.S., at least for a time, re-emerge as the world's biggest oil producer; the lower electricity costs resulting from the fossil-fuel boom are already triggering a revival of U.S. manufacturing in the Southeast and elsewhere. In a functioning federal system, the pace of institutional degeneration is not uniform. America's four "growth corridors"—the Great Plains, the Gulf Coast, the Intermountain West and the Southeast—are growing not just because they have natural resources but also because state governments in those regions are significantly more friendly to business. There are already heartening signs of a great regeneration in states like Texas and North Dakota. "In America you have a right to be stupid—if you want to be." Secretary of State John Kerry made that remark off the cuff in February, speaking to a group of students in Berlin. It is not a right the founding fathers felt they needed explicitly to enshrine. But it has always been there, and America's leaders have frequently been willing to exercise it. Yes, we Americans have the right to be stupid if we want to be. We can carry on pretending that our economic problems can be solved with the help of yet more fiscal stimulus or quantitative easing. Or we can face up to the institutional impediments to growth I have described here. Not many economists talk about them, it's true. But that's because not many economists run businesses. FOR MORE SEE MACRO ANALYTICS VIDEOS ON THE SUBJECT |
CRONY CAPITALISM
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MOST CRITICAL TIPPING POINT ARTICLES THIS WEEK - June 2nd - June 8th | |
RISK REVERSAL | 1 | ||
JAPAN - DEBT DEFLATION | 2 | ||
BOND BUBBLE | 3 | ||
EU BANKING CRISIS |
4 |
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SOVEREIGN DEBT CRISIS [Euope Crisis Tracker] | 5 | ||
CHINA BUBBLE | 6 | ||
SECURITY SURVEILLANCE COMPLEX - Growing Without Public Control or Supervision!
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06-10-13 | THEMES | 37 - Cyber Attack or Complexity Failure |
RISK - Liquidity and Devious Public Policy Can Overcome Common Sense for only so long! Liquidity Can Overcome Common Sense For Only So Long 06-13-13 Mark J. Grant, author of Out of the Box Testifying before the British Parliament yesterday:
Here may be the most open and truthful statement by any central banker since 2009. His comments indicate a number of things besides the first blush read. First and foremost it is an admission of global manipulation by all of the major central banks which is a position that I have expressed for quite some time. Mr. Haldane’s comments here and other remarks he made leave little doubt that the central banks have operated in collusion. You better not cry, Better not pout, I'm telling you why |
06-14-13 | CANARIES | 9 - Global Governance Failure |
EARNNGS - Tax Incentives Inflating Earnings Behind the Big Profits: A Research Tax Break 06-14-13 WSJ Strong first-quarter corporate profits may not be quite as good as they look. An analysis by The Wall Street Journal shows that the extension of a big tax credit quietly boosted the profits of dozens of companies. Under accounting rules, the companies reported a year's worth of benefits from the research-and-development tax credit in their first-quarter results, lifting profits for many of them by more than 10%. With first-quarter results nearly complete, 465 participants in the Standard & Poor's 500-stock index cumulatively reported that revenue increased 2.1% from the same period a year earlier. Expenses grew slightly faster, so pretax profit rose only 0.9%, according to the Journal's analysis. But the S&P-500 companies also set aside 5.6% less money for taxes, and that helped their cumulative profits grow a robust 6.7%, the Journal found. The biggest reason they took that action: the extension of the research credit and other tax breaks in January, said Jeffrey Hoopes, a lecturer in accounting at Ohio State University whose recent doctoral dissertation examined the issue. For some companies, the effect was dramatic. Internet giant Google Inc. reported spending $6.8 billion on research and development in 2012, making it one of the nation's biggest corporate research spenders. The company set aside less than half as much money for first-quarter taxes as it did a year earlier even as its pretax income increased 2%, to $3.6 billion. Its effective tax rate fell to 7.9% from 18.5%. In a securities filing, Google said the drop was "primarily" due to the extension of the tax credit. If Google's profit had been taxed at the same rate as last year, the company would have had to set aside an additional $380 million for income taxes. "This tax credit was introduced over 25 years ago to stimulate innovation—and that's exactly what we use it for," a Google spokeswoman said. The first-quarter tax rate of semiconductor maker Intel Corp. also declined, to 16.3% from 28.2%, in the 2012 first quarter. Intel reported $10.1 billion in research spending last year, more than any other publicly traded U.S. company. It said the "substantial majority" of the decline stemmed from extension of the research credit. If Intel's profits had been taxed at last year's rate, it would have set aside an additional $290 million. Big companies cited a variety of reasons for reporting smaller first-quarter tax bills. In addition to the tax-credit extension, pharmaceutical maker Merck & Co. reported a $160 million benefit from resolving an old tax dispute between the Internal Revenue Service and Schering-Plough Corp., which Merck acquired in 2009. Insurance company Cigna Corp. said its tax rate declined because of changes to its reinsurance and disability businesses. But extension of the research credit weighed heavily. The credit, which applies to increases in research spending, costs the federal government more than $7 billion annually, according to the Senate Finance Committee. First adopted in 1981, the credit has been extended 15 times, but it has never been made a permanent part of the tax code. The previous extension expired at the end of 2011, meaning that companies couldn't claim the credit last year. That quietly increased tax rates—and hurt earnings—last year. Under the measure approved in January, the research credit will again expire at the end of this year, raising the prospect of future distortions in corporate earnings. Research-heavy technology and pharmaceutical companies benefit most from the credit. In 2009, the latest year for which statistics are available, the Internal Revenue Service said that more than half the $7.7 billion in credit was claimed by companies in three industries:
Within those industries, said Nirupama Rao, an economics professor at New York University, the bulk of the credits are claimed by the largest companies. "It's big corporate America," Ms. Rao said of the beneficiaries. "Small firms aren't profitable enough to get the credit." For example, aircraft-maker Boeing Co. said that extension of the credit reduced its first-quarter income-tax provision by $145 million. Boeing's tax rate fell to 23.1% from 36.8% in the first quarter a year earlier. Boeing reported spending $3.3 billion on research and development in 2012. It's unclear how well investors anticipated the additional tax benefits. The accounting implications were known when Congress approved the extension as part of a deal to resolve the so-called fiscal cliff on Jan. 1. But a spot check by Thomson Reuters found that, of a dozen big beneficiaries of the credit, analysts excluded the impact from their earnings estimates at only one: Texas Instruments Inc. Looking ahead, the unusual benefit from extension of the tax credit won't help corporate profits for the rest of this year. Analysts surveyed by Thomson Reuters project that S&P 500 earnings will rise 2.7% in the second quarter, about half the growth rate of the first quarter. "The effective tax rate we saw in the first quarter is not representative of what we'll see in the rest of the year," said Alex Morozov, head of the health-care analyst team at Morningstar. |
06-14-13 | ANALYTICS FUND-MENTALS |
19 - US Stock Market Valuations |
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MACRO News Items of Importance - This Week | |||
GLOBAL MACRO REPORTS & ANALYSIS |
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US ECONOMIC REPORTS & ANALYSIS |
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CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES | |||
KEYNESIAN MULTIPLIER - Insufficent Wealth Being Created from Debt Increases More On the Deflationary Bust Risk Charles Gave GavKal via ZH "In an environment of permanent low interest rates there is no impetus on behalf of the private sector to spend for growth, either in the form of capital spending or the hiring of incremental workers. The only net money exchange is the issuance of debt to fund dividends and stock buybacks: or simple EPS-boosting balance sheet arbitrage as shown most recently here." This is what I will, for the purposes of this paper, call my “Keynesian multiplier” - it is simply the arithmetical difference between growth in wealth and growth in public debt—on which I compute the seven-year rate of change. Milton Friedman’s “permanent income hypothesis” - Does it makes sense, or not? i.e., are economic agents rational enough that when they see an increase in government debt, they will increase their savings, safe in the knowledge that they will have to pay for the debt increase down the road? Or whether economic agents are just too shortterm focused to project themselves that far? PERMANENT ASSET HYPOTHESIS: Modifying the above idea somewhat, which probably best applies in asset-rich, ageing countries. Basically, as interest rates move ever lower, retirees, pension funds and insurance companies needing to a certain fixed amount of return are forced to buy ever more fixed income. So low rates and rising public debt issuance, instead of encouraging more risk and renewing animal spirits, instead pushes investors feeling ever poorer into increasingly defensive, and yield generating, assets. In essence, the perception that assets will not generate enough income going forward encourages the average saver to increase his savings, which is the precise opposite of the stated goal. This law of unintended consequences may help explain why the private business sector’s demand for credit remains limp, even though money is being lent for free.
If the multiplier is expanding, this tells us that an increased level of debt should lead to a greater increase in the household net worth over seven years. And vice-versa. This allows us to roughly evaluate how many dollars of private wealth are created by one more dollar of public debt. Let us look now at the relationships between our Keynesian multiplier and certain economic variables. The chart below shows that the marginal efficiency of public debt, at least in the US (public spending in emerging markets from a low base usually improves productivity) has been declining structurally since 1981. And it seems that this marginal efficiency has now reached a negative level. One initial indication that the Keynesian multiplier was now shrinking was the US boom that followed the Clinton/Gingrich balanced budgets and era of government deleveraging between 1997 and 2000. A reality which brings us back to one of the greatest debates between Keynesians and Austrians as to whether Milton Friedman’s “permanent income hypothesis” makes sense, or not; i.e., are economic agents rational enough that when they see an increase in government debt, they will increase their savings, safe in the knowledge that they will have to pay for the debt increase down the road? Or whether economic agents are just too shortterm focused to project themselves that far? Modifying the above idea somewhat, we have, in the past, come up with a “Permanent Asset Hypothesis” which probably best applies in asset-rich, ageing countries. Basically, as interest rates move ever lower, retirees, pension funds and insurance companies needing to a certain fixed amount of return are forced to buy ever more fixed income. So low rates and rising public debt issuance, instead of encouraging more risk and renewing animal spirits, instead pushes investors feeling ever poorer into increasingly defensive, and yield generating, assets. In essence, the perception that assets will not generate enough income going forward encourages the average saver to increase his savings, which is the precise opposite of the stated goal. This law of unintended consequences may help explain why the private business sector’s demand for credit remains limp, even though money is being lent for free. Of course, credit demand may also be weak because there is no immediate reason to expect the rise we have seen in US (and global) financial assets should help boost median incomes. So far it has not: And in a world where it does not pay to borrow, one should expect a structural decline in the velocity of money to take place. Which is what the next chart is indicating: And in a world where it does not pay to borrow, one should expect a structural decline in the velocity of money to take place. Which is what the next chart is indicating: With the Keynesian multiplier now negative, one would expect very low growth in volumes and nominal GDP. And this, of course, is what we are seeing. Despite the massive stimulus, and the improvement in the US trade balance (thanks to the energy revolution and the US manufacturing renaissance), the US economic expansion remains rather unimpressive. The recent moves in bond yields would seem to suggest that markets are expecting that the economic lift-off is finally about to arrive; either that or that Ben Bernanke will soon throw in the towel and start normalizing monetary policies. Given that the odds of the latter are lower than a snowball in hell (from afar, it usually feels as if the Fed chief has made his motto that of George Bidault’s: “I don’t know where we are going, but we will get there without detours”), it is more likely to be the former than the latter. The problem, for me, is that I struggle to believe that we are on the verge of a new global economic expansion. Instead, if structural growth is to now be dragged lower by the fact that the Keynesian multiplier has gone negative, and with governments continuing to spend like sailors on shore leave in Hong Kong despite the drag on productivity and structural growth, then we cannot really expect long rates to move decisively higher. Summarizing the above: if Bernanke is honestly curious why the economy remains broken, and none of his "central" tinkering has done much to boost the Keynesian multiplier and with it any prospects for real economic growth, he suggest he take a long, hard look in the mirror. |
06-11-13 | MONETARY | CENTRAL BANK |
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DIVERGENCES - Can Be Found Almost Everywhere If Things Are So Great, Why Is This Chart So Bad? 06-13-13 Bloomberg Briefs via ZH Just as during the Great Moderation, buying financials has become the no-lose trade for any and all momo junkies. From their 'fortress' balance sheets (prone to total leveraged collapse at any moment from giant over-zealous trades and mismarking of assets) to their 'can't lose' scenario analysis if rates rise because NIM will make them rich (aside from the fact that it won't), bank stocks have been among the best performers in recent months (dramatically outperforming credit in the last few weeks). So we have a simple question. If things are so great... if the outlook so rosy... if the price-to-book so misvalued... why are the bank laying off people in 2013 at a rate almost as fast as they did in 2009? Financial institutions are firing staff at almost the same rate in 2013 as they did in the immediate aftermath of Lehman! which perhaps explains this divergence... Chart: Bloomberg Briefs |
06-14-13 | MACRO PATTERNS
MACRO CYCLE INDICATORS UNEMPLOY- MENT |
ANALYTICS |
PATTERNS - Testing Critical Intermediate Term Trendline Support The Two Charts That Have Central Bankers Terrified 06-13-13 Graham Summers www.gainspainscapital.com Best Regards Graham Summers Japan continues to impode. We’ve now taken out the trendline that supported this rally since November. Not a pretty chart. Certainly not a pretty chart for Central Bankers, who believe QE can drive stocks only up. After all, Japan’s Nikkei is in a bear market only two months after the Bank of Japan announced a record QE. Speaking of trendlines, the S&P 500 is on the ledge of a cliff. Bernanke bought six months’ of market gains with QE 4. Now he’s got a bubble on his hands. And if he even hints at tapering QE at next week’s Fed meeting, the markets could implode. Investors take note, the markets are sending us MAJOR warning signals. Indeed, I don’t remember seeing this many signs of a major top since 2007/2008. We all know how that ended. |
06-14-13 | PATTERNS | ANALYTICS |
BONDS - Buy In June After the Swoon Buy (Bonds) In June, After The Swoon? 06-12-13 Zero Hedge In 2006, 2007, 2008 and 2009 we saw 10Y bond yields surge into June only to peak and turn lower aggressively; and in 2010, 2011 and 2012 we saw a 'mini rally' in yields into June that was not sustained, so, as Citi FX's Tom Fitzpatrick notes, while we regularly hear the mantra for the Equity market of "Sell in May and go away" maybe we should have one for the Bond market - "Buy in June after the swoon." There can be no doubt that the predominant factor in rising yields, increased market volatility, turmoil in emerging markets, rising peripheral European yields etc. over recent weeks has been the Fed but Citi still believes that the mention in the past weeks of "tapering" has been a "Kite flying" exercise by the Fed with the premise being to sell 'the markets' on the idea that reducing bond purchases was a “slowing of easing”, a “tinkering” not a tightening. It appears it is not going according to plan and we believe the Fed has got its answer as to what will happen if they announce tapering and it’s not pretty and unless they back away from this 'less easing' path, this policy mistake will have a negative feedback loop in financial markets and the economy leading to the market “easing” again and sending bond yields lower once more. Via CitiFX, ... So the argument from the Fed is that tapering is a slowing of the easing process rather than a tightening process. While mathematically that may be correct consumers do not borrow from mathematicians or for that matter at the “Fed funds rate” The simple fact of the matter is that starting with the employment numbers in May combined with the tapering rhetoric from the Fed this rate has risen 71 basis (low to high) points since 01 May. If pushing mortgage rates lower is accepted to be a form of unconventional monetary easing (given we are looking to recover out of the greatest housing downturn of this generation) then rising mortgage rates have to be viewed as a tightening. So to varying degrees we have seen a rising 10 year yield into June in the last 7 years. The most impulsive moves were seen in the four years 2006-2009. Those moves had characteristics more like what we have seen this year and in all cases we saw dramatic moves lower after a surge higher into June. Three of those four surges peaked between 11 and 13 June.
Bottom line the Fed is singing “Everything will be alright” while the market is singing “Hotel California” (You can check out anytime you like but you can never leave.) Tapering will come, tightening will come but the “patient” is not yet healthy enough to take this shock just yet. To push this prescription at this point risks a relapse. |
06-13-13 | BONDS CREDIT YIELD
STUDY |
ANALYTICS |
BONDS - A Flight to Safety from An EM Liquidity Crisis? A Treasury bond buying opportunity triggered by an emerging market storm? 06-12-13 Currency Currents As you likely know, there has been a lot of damage to emerging market stocks, bonds, and currencies on a relative basis compared t o the developed world markets. And you may remember that n ot too long ago emerging /developing market (EMs) finance minist ers were beating the drums of “ currency war. ” The b l ame placed squarely on the august shoulders of Mr. Ben Bernanke and company . The IMF was so concerned; they were openly endorsing the use of capital controls to help EMs to handle the pressure . We ll, maybe it ’ s just a cease fire, but EM finance ministers are now intervening to keep their currencies from “ depreciating. ” How quickly things can change? Given the nature of emerging (or developing) world markets, and lack of any depth in their capital markets, i.e. bond markets, relative to the size of money flows from the center from i ndividuals and institutions escaping the zero interest rate regimes and looking for more, the ebb and flow of money can be seen by the track of EM stock market and currency markets. Keep in mind that o ne has to buy the currency to invest in l ocal stocks of an EM, and one has to sell the stocks and sel l the currency locally when one decides to leave. If there was a viable bond market locally, with assorted money market and derivative products available, we likely wouldn ’ t see the currencies so highl y correlated with local stocks . A good example of this can be seen in Brazil. N otice the correlation between the Brazilian real/USD cross and Brazil ’ s stock market in the daily chart below : This price action in stocks and currencies has been playing out in many EMs lately. S o it poses a couple of questions:
Wrestling with the first question and thinking abou t the actions in US Treasuries is a bit confusing. Below is a chart comparing the Thomson R euters BRIC Stock Index (Brazil, Russia, India and China) versus US Treasury Bond Futures ... what I want you to notice here is th at usually when there is a sell - off in the BRIC index, US T reasuries ral ly and vice versa . But notice the action since the latest sell - off in the BRIC index, which began back in early May 2013 — instead or rallying on this price actio n, US Treasury bond prices fell, i.e. the price series moved in the same direction. As JR and I think about this chart, it leads to an interesting set of scenarios. Some a bit more far - fetched than others; but here is what I am thinking: This money flowing out of EM equities is flowing into US and other developed world equity markets. But, the danger here is two - fold: a) Given the deleveraging by European banks out of EM markets; there is a real poss ibility of a liquidity crunch, and b) a liquidity crunch in EMs would likely go hand and hand with a big sentiment shift regard ing global growth, i.e. it might Black Swan Many market conflagrations have been ignited quietly in EMs before growing into a global &^#$ ( four lett er wo rd starting with “ s ” ) storm . Could this be one of the m? Of course we don ’ t know. But, if a storm develops it means US Treasuries , as usual , will be the |
06-13-13 | BONDS CREDIT YIELD
STUDY |
ANALYTICS |
BOND MARKET - Tremors Getting Louder Bond Market Tremors Get Louder 06-11-13 Zero Hedge It appears the cracks in the armor of the central bankers created by an over-enthusiastic BoJ's impact on the quadrillion JPY JGB markets are now rippling through the global market place. While every talking head that dares to speak has proclaimed the weakness in bonds as nirvana for equity bulls, it seems they were wrong, very wrong. As bond market tremors ignite everywhere, so equity markets come a little unglued at the prospect that the Fed, ECB, BoJ, and PBOC may not be so omnipotent after all... Bond markets... |
06-11-13 | BONDS YIELD CREDIT |
ANALYTICS |
BOND SCARE - Mainstream Saying Bond Market HAS or IS Reversing Its Long Trend SOCGEN: 'Are We Facing A Bond Crash? Not Yet, But...' 06-10-13 Socgen via BI Recent moves in the US and Japanese bond markets have some people worried if interest rates are doomed to surge. The consensus certainly seems to think so. Goldman Sachs' Francesco Garzarelli has warned clients that the bond sell is "for real" with 10-year Treasury yields likely to head to 2.5% later this year. In a note to clients this morning, Societe Generale's Patrick Legland reminds clients that their analysts expect the 10-year Treasury surging to 2.75% by the end of the year. Legland communicated this in a note titled "Are We Facing A Bond Crash? Not Yet, But..." In the note, he discuss the risk of a disorderly bond market sell-off. Here's the "but" explained:
So, the risk of a bond crash is not imminent, but certainly on the table.
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06-11-13 | BONDS YIELD CREDIT |
ANALYTICS |
EMERGING MARKETS - Feeling the US "Exportation" of Inflation This Is Increasingly Looking Like An Emerging Market Bond Meltdown 06-10-13 BI The massive sell-off across emerging markets continues in force. One of the big themes in global markets over the past month has been the rise in U.S. Treasury yields and the attendant strength in the U.S. dollar. This has caused a big unwind in emerging markets, as EM currencies depreciate against the dollar and higher-yielding EM government bonds look less attractive relative to Treasuries. The 10-year Turkish government bond yield rose 22 basis points to 4.22%. In South Africa, 10-year yields rose 28 basis points to 7.84%. And in Mexico, 10-year government bond yields widened 5 basis points to 3.33%. And if you're looking for a really ugly chart, inflation linkers in Brazil are getting absolutely massacred. (Inflation linkers are just bonds linked to inflation, like TIPS in the U.S.) |
06-11-13 | BONDS YIELD CREDIT
BRIEF |
ANALYTICS |
VALUATIONS - Macro Trends in Wages and Profits The Real Underpinning for Equities 06-11-13 Gavyn Davies, Financial Times Global equities have, so far, survived the bout of global deleveraging which followed Ben Bernanke’s remarks about slowing the pace of QE last month, though there have been nasty signs of volatility in Japanese and some emerging markets. Investors have, unsurprisingly, become temporarily obsessed by whether the Fed will taper its asset purchases in September or December. However, in the great scheme of asset valuation, this is nothing more than a passing detail. In the longer term, what matters is real factors, like
In recent years, the Fed has reduced the bond yield but the market has, simultaneously, required a higher ERP, so the overall discount rate on equities has remained broadly unchanged
This, however, does not necessarily mean that equities are fairly valued. A common concern among investors is that the profit share in the US economy is currently abnormally high, which is one reason why US equities have performed so well since 2009. It is frequently argued that the profit share must eventually “mean revert”, and when that happens the market will have to revise downwards its estimates of the sustainable path for corporate earnings. Equities will tumble, not because of a hostile Fed, but because the fundamental earning capacity of corporate America will be found wanting. This, however, seems to underplay the persistence and global breadth of the rise in the profit share, and the accompanying decline in the wage share, in the last three decades. It is far from clear why this trend should “mean revert” in the foreseeable future. The recent behaviour of the wage and profits share in the US is familiar territory for most investors. After a century or more in which the profit share in GDP had fluctuated around a constant mean, the rise in the last few years has taken it above previous peaks, and the wage share has plumbed unprecedented depths. This has occurred because real wages in the US have grown much more slowly than output per head, which means that all of the gains from productivity growth have dropped into the hands of shareholders rather than workers. I am certainly not making the case that this has been socially desirable, especially since the rise in real wages which has occurred has been concentrated at the very top of the income scale. The resulting change in the distribution of income and wealth is a major political issue (see David Blake’s penetrating analysis here), but from an investor’s point of view, it has provided a critical underpinning for rising share prices. In the past, market economies have tended to erode unusually high profit margins through price competition which has restored real wages to their previous trends. That has always been seen as the natural order of things in a capitalist system. But there is no sign of it happening this time. It is important to recognise that similar patterns have been seen not just in the US, but throughout the developed world, starting in the late 1970s [1]. In fact, the gross profit share in the advanced economies has risen by about 10 percentage points of GDP over three decades, and the wage share has fallen by the same amount (see this analysis just published by the International Labour Organisation, well summarised by Timothy Taylor here). This is an enormous upheaval in the distribution of income in the global economy, and it has happened in an almost continuous straight line over the entire period. It seems to have been impervious to every kind of shock, including
Not only has this pattern been repeated in almost every developed economy (though the UK and some of the less successful eurozone economies are partial exceptions over recent years), it has also been seen in the emerging economies as well. This is even more surprising, since conventional trade theory (ie the Stolper-Samuelson theorem) predicts that the returns to the abundant factor of production, which is clearly labour in the emerging economies, should rise as more trade takes place. The Stolper-Samuelson theorem (explained here) assumes that neither capital nor labour is mobile across borders. With capital increasingly mobile since the 1980s, the predicted rise in the wage share in emerging economies has not happened. What has happened instead is that the returns to capital have increased throughout the world, while the returns to labour have been severely squeezed. Workers have not had sufficient market or political power to prevent this. The cumulative effect on corporate earnings, and therefore on equity markets, has been enormous. Consider the following. If the 10 percentage points decline in the wage share had not occurred, and everything else had (implausibly) stayed the same, then gross profits in the developed economies would have been about one-third lower than they are today and net profits (after depreciation) would have been about two-thirds lower. In addition, since the ILO reports that much of the income transferred from labour to capital has been used to pay increased dividends, the consequent rise in the dividend yield has probably been very large as well. The conclusion is two-fold.
—————————————————————————————– Footnote [1] The data for international economies relate to the “adjusted” wage and profit share, after excluding the self employed. The advanced economies are a GDP-weighted aggregate of the US, eurozone, Japan and the UK. The emerging economies are a simple average of Korea, Turkey, Mexico, Hungary and Poland. Source: EC Ameco database. |
06-12-13 | MACRO VALUATIONS |
ANALYTICS |
EARNINGS - Estimates Becoming Very Suspect For Anyone Who Still Thinks Earnings Matter 06-10-13 Zero Hedge As Mike Tyson once ominously noted, "everyone has a plan until they get punched in the face," and it seems the rampage of equity bulls have some plan that many more prosaic fundamental analysis-based investors are unaware of (as we showed here). The 'punch' in the face will come; but in the meantime the following chart may be just the 'jab' that softens them up. As ThomsonReuters notes, of the 116 second-quarter earnings preannouncements given by S&P 500 companies, 93 of them have been negative, while only 14 have been positive. The resulting 6.6 negative to positive guidance ratio is the most negative since the first quarter of 2001. Nothing to see here, move along. Of course - that doesn't matter - as we already know... fundamentals are irrelevant in a market of expanding hope-driven multiples... because margin 'faith' is keeping the dream alive... Charts: Barclays and ThomsonReuters (h/t Brad Wishak At NewEdge) |
06-12-13 | FUND-METNALS EARNINGS |
ANALYTICS |
PATTERNS - Bond Scare Unfolding as Predicted Treasury Yields Spike To New 14 Month Highs 06-10-13 Zero Hedge 30Y rates are up 4bps and 10Y rates up 5bps as a combination of MBS convexity hedging, Taper chatter, and growth hopiness flutter across the bond market. This has backed 10Y and 30Y rates up to their highest since April 2012 - getting close to some significant support/resistance from the last few years. Mortgage spreads have stabilized up here at their highest since July (around 83bps) but just as a delicate reminder, the last time bond yields spiked to this degree, equities began to wonder just what was going on? With so much of the investing public having bought bond-like-stocks at the behest of every talking head and asset-gatherer under-the-sun, we wonder at what point do the arguments about a great rotation from bonds to stocks (since gosh, 10Y bond prices are down 3% in the last month) turn to a rotation from bond-like-stocks to bond-like-bonds... Or more simply, the market's (or the Fed's) realization that 'normalizing' rates here will crush the economy as interest expense surges (think Japan...) Charts: Bloomberg |
06-11-13 | BONDS YIELD CREDIT
BRIEF |
ANALYTICS |
PATTERNS - Bond Scare Unfolding as Predicted -2 10Y TIPS Yield Above 0%; Highest In 19 Months 06-10-13 Zero Hedge After 19 months in the red, yields on the 10Y TIPS have just shifted into positive territory. We saw a similar surge in TIPS yields in Q4 2010 / Q1 2011 which did not end well for stocks. This comes along with the simultaneous drop in the Fed's inflation gauge - five-year forward breakevens - which is now at its lowest in 9 months. This kind of drop has previously led to further QE action by the Fed, and right on cue...
As Barclays notes:
10Y TIPS yield... 5Y 5Y Forward inflation expectations... The embedded par floors in TIPS have not richened as they have in past episodes of market stress suggesting this move is more a shift in fundamental sentiment than technical/flow driven... Charts: Bloomberg |
06-11-13 | BONDS YIELD CREDIT
BRIEF |
ANALYTICS |
VALUATIONS - Market Expensive According to 5 Year Rolling Forward PE The Stock Market Is Broadly Expensive According To This Uncommon Measure 06-08-13 Morgan Stanley via BI The simplest way to value stocks or the stock market is to take its price and divide it by earnings (i.e. P/E). There are many ways to apply the P/E. For the stock market, strategists often take the price of the index and divide it by the index's earnings. In his June monthly chartbook, Morgan Stanley's Adam Parker considers the stock price against expected earnings (i.e. forward P/E). Then he compares that ratio to the stock's average forward P/E in the past five years. Then Parker saw how many stocks were trading above its average historical forward P/E. That's what's charted below. Simply put, this chart shows that more than half of the stocks in the stock market are trading above their own average valuations. In other words, the stock market appears to be broadly expensive. |
06-10-13 | FUND-MENTALS VALUATIONS PE |
ANALYTICS |
ANALYTICS - Fund Managers forced to Chase Yield Some Charts from Investing Caffeine 06-03-13 PERCEPTION OF REASONABLE PE
FUND MANAGERS MOST GO WHERE THE PERCEIVED YIELD IS FEW BELIEVE BUT SOME MUST CLIMB THE PERCEIVED "WALL-OF-WORRY"
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06-10-13 | FUND-MENTALS EARNINGS |
ANALYTICS |
EARNINGS - Estimates Simply Not Believable This Is What You 'Believe' If You Are Buying Stocks Now 06-10-13 @AndrewYorks via ZH Each and every day we are told by asset-gatherers everywhere that stocks are cheap, money-on-the-sidelines will 'greatly rotate', and now that any 'Taper' is good news as it signals the Fed 'believes'. However, it would appear that the market is either a 'hope-discounting mechanism' or a serial non-linear extrapolator; as, just for clarity, this is the 'hope' that equity bulls are buying currently about the next three years' earnings... what could possibly go wrong? It seems the serial extrapolators are hard at work once again... And as far as QE stoking inflation - still don't think it exists?
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06-10-13 | FUND-MENTALS EARNINGS ESTIMATES |
ANALYTICS |
COMMODITY CORNER - HARD ASSETS | PORTFOLIO | ||
GOLD - JPM's Gold Vault Needs Watching JPM Vault Gold Drops By 28.4% Overnight, Slides To Fresh Record Low As Withdrawals Accelerate 06-11-13 Zero Hedge With a massive 6,208 (or 80% of the total in the entire Comex system) Customer Delivery issues outstanding against JPM so far in June alone, many have been wondering - how and when will the firm reconcile what is seemingly more demand for JPM vaulted gold than the firm has in its possession? While we still don't have the answer, what we do know is that as of an hour ago when the Comex released its daily vault depository statistics, JPM has said goodbye to another 28.4% of all of its vaulted gold - the largest one day withdrawal since April 25, the result of the departure of 61.5% of its Eligible gold, as hundreds of thousands of registered ounces in the bast few weeks have seen warrant detachment. Which means that as of last night, total gold held by JPM has fallen to a new fresh all time low of just 550k ounces, down from 768K the day before, and total eligible gold of only 136,380 troy oz in inventory (just over 4 metric tonnes) - also a record low. Whoever is "running the JPM vault" shows no sign of relenting. At this pace, the world's biggest gold vault located below 1 CMP, and just next to the Fed's own gold vault, will be empty in about 1.5-2 months.
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06-13-13 | GOLD | PRECIOUS METALS |
GOLD - Tentacles of Financial Repression France Prohibits Sending Currency, “Coins And Precious Metals” By Mail 06-07-13 Goldcore via Market Oracle France has prohibited the sending of currency, “coins and precious metals” by mail. In new legislation which was enacted May 23rd, the French government decreed that it is forbidden to send all forms of currency - coins and cash and all forms of precious metals – coins, bars and jewellery by mail. The legislation was published on Legifrance, the French government entity responsible for publishing legal texts online and can be seen here. It was not announced by the government and not covered in the media. There were no communications and nobody in the government justified or explained this decision. The legislation says that “the insertion of banknotes, coins and precious metals is prohibited in mailings, including the insured items, registered items and items subject to formalities certifying deposition and distribution. " Some have suggested that the decree is to limit what is known in France as “the anonymous market”, the market in which no taxes are paid and people are free to trade without the supervision of banks and government. However, euro coins and notes and gold bullion coins and bars attract no tax in France and therefore this is more likely to be an attempt to discourage the ownership of gold bullion and cash outside of the banking system and is a form of capital control. It may also be an attempt to restrict the growing private market in France of people buying bullion online through Ebay which is increasingly popular. The freedom of people to trade amongst themselves is a form of civil liberty as is the right to privacy. The selling and the buying of precious metals in France are already subject to strict regulations. Until September 2011, citizens could easily buy and sell gold coins and bars with cash but this was forbidden then when French citizens were forbidden to buy with cash in person and had to buy precious metals by trade mail, crossed cheque and by wire transfer or be “punished by a fine of fifth grade” which is a fine of some €1,500/oz. The government decree does not specify that other independent companies cannot send gold and or silver coins or bars by mail. Indeed, it is only the French public company or national post company, La Poste that is forbidden in the decree. However, 3 months ago in March, Fedex began stopping French people from taking delivery of precious metals. At the start of the year, UPS began stopping French people from taking delivery of precious metals. Perhaps not coincidentally, in recent days Fedex have stopped allowing companies and individuals to send or receive gold and other precious metal bullion coins and bars by insured mail in Germany and the UK. This is an important story that bears watching as it appears that governments internationally, from India to France are attempting to control, restrict and make it difficult for their citizens to own bullion. |
06-10-13 | GOLD | PRECIOUS METALS |
GOLD - Confiscation as Part of Financial Repression is Still A Possibility Don’t Dismiss The Possibility Of Gold Confiscation 06-07-13 Jeff Thomas via Casey Research via ZH If you hold precious metals in your portfolio, there is a good chance you fear hyperinflation and the crash of fiat currencies. You probably distrust governments in general and believe they are self-serving and have no interest in your economic well-being. It is likely that your holdings in gold are your lifeline – your hope to get you through these times while holding on to your wealth. But have you ever given any thought to the possibility of having this lifeline confiscated by the authorities? In my conversations with friends and associates, I have often raised this question. The typical responses:
I consider these "wishful thinking" responses. It's an interesting thought that the greatest threat to gold and silver investment might not be the possibility of losing on the speculation, but the government taking it away from you. It's a thought that I've found few want to even think about, let alone discuss. If you fall into this camp, you're in good company. Some of the forecasters whom I respect most highly also treat it either as unlikely or at best, "something we may need to look at in the future." To date, in conversing with top advisors worldwide, the two primary reasons they believe gold will not be confiscated are:
Yes, this is quite so. They would be changing their official view… which, of course, they do all the time. But I submit that all that they need to do is put the proper spin on it.
I expect that this is also true, but that a plan will be put in place to deal with that resistance. We'll address both of these assertions in more detail shortly, but first, a bit of history. In 1933, Franklin Roosevelt came into office and immediately created the Emergency Banking Act, which demanded that all those who held gold (other than personal jewelry) turn it in to approved banks. Holders were given less than a month to do this. The government then paid them $20.67 per ounce – the going rate at the time. Following confiscation, the government declared that the new value of gold was $35.00. In essence, they arbitrarily increased the value of their newly purchased asset by 69%. (This alone is reason enough to confiscate.) Today, the US government is in much worse shape than it was in 1933, and it has much more to lose. The US dollar is the default currency of the world, but it's on the ropes, which means the US economic power over the rest of the world is on the ropes. I think that readers will agree that they will do anything to keep from losing this all-important power. The US government has essentially run out of options. At some point, the fiat currencies of the First World will collapse, and some other form of payment will be necessary. Yes, the IMF is hoping to create a new default currency, but that, too, is to be a fiat currency. If any country were to produce a gold-backed currency in sufficient supply, that currency would likely become the desired currency worldwide. Fractional backing would be expected. As most readers will know, the Chinese, Indians, Russians, and others see the opportunity and are building up their gold reserves quickly and substantially. If these countries were to agree to introduce a new gold-backed currency, there can be little doubt that they would succeed in changing the balance of world trade. That said, the US government is watching these countries just as we are, and they are aware of the threat of gold to them. The US government ostensibly has approximately 8,200 tonnes of gold in Fort Knox, although this may well be partially or completely missing. Additionally, it ostensibly holds a further 5,000 tonnes of gold in the cellar of the New York Federal Reserve building. Again, there is no certainty that it is there. In general, the authorities don't seem to like independent audits. In fact, there are rumors that the above vaults are nearly or completely empty and that the above quoted figures exist only on paper rather than in physical form. While there is no way to know this for sure, it's not out of the question. Either way, if the US and the EU could come up with a large volume of gold quickly, they could issue a gold-backed currency themselves. It's a simple equation: The more gold they have = the more backed notes they can produce = the more power they continue to hold. By seizing upon the private supply of their citizens, they would increase their holdings substantially in short order. Either that or they could just give up their dominance of world trade and power… What would you guess their choice would be? It is entirely possible that the US government (and very likely the EU) has already made a decision to confiscate. They may have carefully laid out the plan and have set implementation to coincide with a specific gold price. So how would this unfold? Let's imagine a fairly extreme scenario and ask ourselves if it could be pulled off effectively:
Again, this hypothetical scenario is an extreme one. The reader is left to consider just how likely or unlikely this scenario is and what that would mean to his wealth. But bear this in mind: If the above scenario were to take place soon, the average citizen would have mixed feelings. They would be glad that the "evil rich" had been taken down a peg, but they would worry about the idea of the government taking things by force, because they might be next. It would therefore be in the government's interests to implement confiscation only after the coming panic sets in – after the next crash in the market, after it becomes plain to the average citizen that this really is a depression and he really is in big trouble. Then he will be only too glad to see the "greedy rich" go down, and he won't care about the details. As terrible as the thought is, it seems unlikely to me that the government will not confiscate gold, as they have little to lose and so much to gain. Those who own gold would prefer to think that this cannot happen, but they have quite a lot riding on that hope and precious little evidence to support it. It is entirely possible that this scenario will not take place, just as it is possible that confiscation will not take place. The purpose of this article is to spark some serious discussion – both for and against the possibility. Investors are, by their very nature, planners. It may take a community of investors to develop a legal plan to deal with the above eventuality. Time to get started. The government can't easily confiscate what's outside its own borders, which is why it's working night and day to make it as difficult as possible for you to protect your assets abroad. This sad reality means that you need to take action before it's too late. Your first step? Learn how to start internationally diversifying your wealth – and your life. From investing in international markets and opening offshore bank accounts to setting up an offshore LLC or annuity, Going Global 2013 will tell you how and where to expatriate your wealth. It also presents solid, up-to-date information on internationalizing your life, from getting a second passport to choosing a good place to live. Don't allow yourself to be milked by your home government any more. Get started on internationalizing your life today... while it's still possible. |
06-10-13 | GOLD | PRECIOUS METALS |
PRIVATE EQUITY - REAL ASSETS | PORTFOLIO | ||
AGRI-COMPLEX | PORTFOLIO | ||
SECURITY-SURVEILANCE COMPLEX | PORTFOLIO | ||
THESIS Themes | |||
2013 - STATISM |
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STATISM - A Short History of Big Brother Sam How America Became Orwellian: A Short History of Big Brother Sam 06-09-13 Juan Cole at Informed Comment Cora Currier, Justin Elliott and Theodoric Meyer write at On Wednesday, the Guardian published a secret court order requiring Verizon to hand over data for all the calls made on its network on an “ongoing, daily basis.” Other revelations about surveillance of phone and digital communications have followed. That the National Security Agency has engaged in such activity isn’t entirely new: Since 9/11, we’ve learned about large-scale surveillance by the spy agency from a patchwork of official statements, classified documents, and anonymously sourced news stories. 1978 Surveillance court createdAfter a post-Watergate Senate investigation documented abuses of government surveillance, Congress passes the Foreign Intelligence Surveillance Act, or FISA, to regulate how the government can monitor suspected spies or terrorists in the U.S. The law establishes a secret court that issues warrants for electronic surveillance or physical searches of a “foreign power” or “agents of a foreign power” (broadly defined in the law). The government doesn’t have to demonstrate probable cause of a crime, just that the “purpose of the surveillance is to obtain foreign intelligence information.” The court’s sessions and opinions are classified. The only information we have is a yearly report to the Senate documenting the number of “applications” made by the government. Since 1978, the court has approved thousands of applications – and rejected just 11. Oct. 2001 Patriot Act passedIn the wake of 9/11, Congress passes the sweeping USA Patriot Act. One provision, section 215, allows the FBI to ask the FISA court to compel the sharing of books, business documents, tax records, library check-out lists – actually, “any tangible thing” – as part of a foreign intelligence or international terrorism investigation. The required material can include purely domestic records. Oct. 2003 ‘Vacuum-cleaner surveillance’ of the InternetAT&T technician Mark Klein discovers what he believes to be newly installed NSA data-mining equipment in a “secret room” at a company facility in San Francisco. Klein, who several years later goes public with his story to support a lawsuit against the company, believes the equipment enables “vacuum-cleaner surveillance of all the data crossing the Internet – whether that be peoples’ e-mail, web surfing or any other data.” March 2004 Ashcroft hospital showdownIn what would become one of the most famous moments of the Bush Administration, presidential aides Andrew Card and Alberto Gonzales show up at the hospital bed of John Ashcroft. Their purpose? To convince the seriously ill attorney general to sign off on the extension of a secret domestic spying program. Ashcroft refuses, believing the warrantless program to be illegal. The hospital showdown was first reported by the New York Times, but two years later Newsweek provided more detail, describing a program that sounds similar to the one the Guardian revealed this week. The NSA, Newsweek reported citing anonymous sources, collected without court approval vast quantities of phone and email metadata “with cooperation from some of the country’s largest telecommunications companies” from “tens of millions of average Americans.” The magazine says the program itself began in September 2001 and was shut down in March 2004 after the hospital incident. But Newsweek also raises the possibility that Bush may have found new justification to continue some of the activity. Dec. 2005 Warrantless wiretapping revealedThe Times, over the objections of the Bush Administration, reveals that since 2002 the government “monitored the international telephone calls and international e-mail messages of hundreds, perhaps thousands, of people inside the United States without warrants.” The program involves actually listening in on phone calls and reading emails without seeking permission from the FISA Court. Jan. 2006 Bush defends wiretappingPresident Bush defends what he calls the “terrorist surveillance program” in a speech in Kansas. He says the program only looks at calls in which one end of the communication is overseas. March 2006 Patriot Act renewedThe Senate and House pass legislation to renew the USA Patriot Act with broad bipartisan support and President Bush signs it into law. It includes a few new protections for records required to be produced under the controversial section 215. May 2006 Mass collection of call data revealedUSA Today reports that the NSA has been collecting data since 2001 on phone records of “tens of millions of Americans” through three major phone companies, Verizon, AT&T, and BellSouth (though the companies level of involvement is later disputed.) The data collected does not include content of calls but rather data like phone numbers for analyzing communication patterns. As with the wiretapping program revealed by the Times, the NSA data collection occurs without warrants, according to USA Today. Unlike the wiretapping program, the NSA data collection was not limited to international communications. 2006 Court authorizes collection of call dataThe mass data collection reported by the Guardian this week apparently was first authorized by the FISA court in 2006, though exactly when is not clear. Dianne Feinstein, D-Calif., chairwoman of the Senate intelligence committee, said Thursday, “As far as I know, this is the exact three-month renewal of what has been in place for the past seven years.” Similarly, the Washington Post quoted an anonymous “expert in this aspect of the law” who said the document published by the Guardian appears to be a “routine renewal” of an order first issued in 2006. It’s not clear whether these orders represent court approval of the previously warrantless data collection that USA Today described. Jan. 2007 Bush admin says surveillance now operating with court approvalAttorney General Alberto Gonzales announces that the FISA court has allowed the government to target international communications that start or end in the U.S., as long as one person is “a member or agent of al Qaeda or an associated terrorist organization.” Gonzalez says the government is ending the “terrorist surveillance program,” and bringing such cases under FISA approval. Aug. 2007 Congress expands surveillance powersThe FISA court reportedly changes its stance and puts more limits on the Bush administration’s surveillance (the details of the court’s move are still not known.) In response, Congress quickly passes, and President Bush signs, a stopgap law, the Protect America Act. In many cases, the government can now get blanket surveillance warrants without naming specific individuals as targets. To do that, the government needs to show that they’re not intentionally targeting people in the U.S., even if domestic communications are swept up in the process. Sept. 2007 Prism beginsThe FBI and the NSA get access to user data from Microsoft under a top-secret program known as Prism, according to an NSA PowerPoint briefing published by the Washington Post and the Guardian this week. In subsequent years, the government reportedly gets data from eight other companies including Apple and Google. “The extent and nature of the data collected from each company varies,” according to the Guardian. July 2008 Congress renews broader surveillance powersCongress follows up the Protect America Act with another law, the FISA Amendments Act, extending the government’s expanded spying powers for another four years. The law now approaches the kind of warrantless wiretapping that occurred earlier in Bush administration. Senator Obama votes for the act. The act also gives immunity to telecom companies for their participation in warrantless wiretapping. April 2009 NSA ‘overcollects’The New York Times reports that for several months, the NSA had gotten ahold of domestic communications it wasn’t supposed to. The Times says it was likely the result of “technical problems in the NSA’s ability” to distinguish between domestic and overseas communications. The Justice Department says the problems have been resolved. Feb. 2010 Controversial Patriot Act provision extendedPresident Obama signs a temporary one-year extension of elements of the Patriot Act that were set to expire — including Section 215, which grants the government broad powers to seize records. May 2011 Patriot Act renewed, againThe House and Senate pass legislation to extend the overall Patriot Act. President Obama, who is in Europe as the law is set to expire, directs the bill to be signed with an “autopen” machine in his stead. It’s the first time in history a U.S. president has done so. March 2012 Senators warn cryptically of overreachIn a letter to the attorney general, Sens. Ron Wyden, D-Ore., and Mark Udall, D-Colo., write, “We believe most Americans would be stunned to learn the details” of how the government has interpreted Section 215 of the Patriot Act. Because the program is classified, the senators offer no further details. July 2012 Court finds unconstitutional surveillanceAccording to a declassified statement by Wyden, the Foreign Intelligence Surveillance Court held on at least one occasion that information collection carried out by the government was unconstitutional. But the details of that episode, including when it happened, have never been revealed. Dec. 2012 Broad powers again extendedCongress extends the FISA Amendments Act another five years, and Obama signs it into law. Sens. Wyden and Jeff Merkley, both Oregon Democrats, offer amendments requiring more disclosure about the law’s impact. The proposals fail. April 2013 Verizon order issuedAs the Guardian revealed this week, Foreign Intelligence Surveillance Court Judge Roger Vinson issues a secret court order directing Verizon Business Network Services to turn over “metadata” — including the time, duration and location of phone calls, though not what was said on the calls — to the NSA for all calls over the next three months. Verizon is ordered to deliver the records “on an ongoing daily basis.” The Wall Street Journal reports this week that AT&T and Sprint have similar arrangements. The Verizon order cites Section 215 of the Patriot Act, which allows the FBI to request a court order that requires a business to turn over “any tangible things (including books, records, papers, documents, and other items)” relevant to an international spying or terrorism investigation. In 2012, the government asked for 212 such orders, and the court approved them all. June 2013 Congress and White House respondFollowing the publication of the Guardian’s story about the Verizon order, Sens. Feinstein and Saxby Chambliss, R-Ga., the chair and vice of the Senate intelligence committee, hold a news conference to dismiss criticism of the order. “This is nothing particularly new,” Chambliss says. “This has been going on for seven years under the auspices of the FISA authority, and every member of the United States Senate has been advised of this.” Director of National Intelligence James Clapper acknowledges the collection of phone metadata but says the information acquired is “subject to strict restrictions on handling” and that “only a very small fraction of the records are ever reviewed.” Clapper alsoissues a statement saying that the collection under the Prism program was justified under the FISA Amendments of 2008, and that it is not “intentionally targeting” any American or person in the U.S. Statements from the tech companies reportedly taking part in the Prism program variously disavow knowledge of the program and merely state in broad terms they follow the law. |
06-13-13 | THESIS | |
STATISM - Why The Surveillance State Must Be Erased
In America today there is a great rushing storm, a swirling hurricane of clashing opinions and ideologies that defy coherent organization and classification. This social tempest has been triggered by certain revelations among the general public on issues which we in the Liberty Movement have long been aware. The fact that our government is bought and paid for by international corporate interests, the fact that our government has positioned itself to spy on ALL Americans without warrant and without probable cause, the fact that our government is instituting policy initiatives that target common citizens as enemy combatants, the fact that every one of our Constitutional rights is being deliberately torn away; these things are not news to us, but to many once ignorant people, they are a shock to the system. Open corruption on the part of a criminal establishment has a funny way of politicizing everyone, even those people who go out of their way to avoid the bigger picture. In the end, no man or woman gets a pass. Whether you like it or not, one day soon, you will have to choose a side; freedom or tyranny. There is no middle ground. There is no Switzerland. With all the rationalizations and counter-rationalizations flying around concerning the current avalanche of admissions and data leaks, it is easy to lose track of the root of the overall conflict. It’s as if we have been dropped into the heart of an Amazonian swamp, our feet encased in a thick sludge of social inaction as a dark cloud of mindless mosquito-people buzz about us, pecking hungrily at our veins with their warped and uneducated world views. The deafening chorus distracts us from what is truly important. Here is the reality of our situation: 1) Both the Bush Administration and the Obama Administration supported FISA domestic surveillance legislation. FISA is the legal tool which the federal government now uses to justify the monitoring of journalists and recently exposed mass surveillance programs such as PRISM. Politicians from both the Republican and the Democratic parties have defended the use of FISA and PRISM. Both parties support the destruction of your 4th Amendment rights. 2) The Obama Administration openly admits to the monitoring of journalists phone and email records in an attempt to thwart whistleblowers that might actually bring the truth of what the government is doing into the light of day. Obama of course defends this position by claiming that “national security” is at stake. 3) Part of the motivation for surveillance measures against journalists has clearly been the Benghazi conspiracy, which is a thorn in the side of the establishment that refuses to go away. Like Watergate, or Iran-Contra, the White House has been caught with its pants down and instead of admitting its guilt, has decided to attack the messengers instead. 4) Another motivation was certainly the exposure of the ATF’s “Fast And Furious” program, which funneled U.S. firearms into the hands of Mexican drug cartels so that American firearms dealers and owners could be blamed for the escalation of deadly violence south of the border. Again, Obama and his handlers seek to use a suffocating surveillance grid in order to thwart whistleblowers and prevent federal crimes from being aired in public. 5) The use of the IRS as a weapon against the political enemies of the establishment (namely Tea Party groups) verifies that government surveillance without oversight can indeed lead to political profiling and unjustified punishment. 6) The PRISM scandal, leaked by former CIA operative and NSA contractor Edward Snowden, has given the general public a raw naked look at the reality of the FISA spy initiative. In the past, Liberty Movement champions have been derided as “paranoid” for pointing out that there were no limitations to FISA, and that the entire nation might one day be monitored and catalogued like animals in a great technological cage. Today, the public now knows that this concern is concrete and undeniable. EVERYONE is being watched. Reports now estimate that NSA hackers harvest over 2.1 million gigabytes of data on American citizens per hour. 7) Privacy rights have been so debased that the invasion of our electronic communications is the least of our worries. The Supreme Court has ruled in Maryland v. King that police now have the authority to extract DNA samples from any person placed under arrest, without a warrant, and without due process. This means that the second a law enforcement officer places you in cuffs, your genetic materials are no longer your property, even if the charges against you are erroneous, if charges are ever filed at all. The government admits to having at least 10 million people catalogued in their genetic database already. 8) Since 9/11, U.S. cities have added approximately 30 million new CCTV cameras on top of those already in operation. After the Boston Bombing, even more are expected to be installed. There are few places in most major cities where you are not being watched, and even smaller municipalities with miniscule crime rates are beginning to follow suit. It would seem that our government has somehow overlooked the 4th Amendment of our Constitution, and statist rationalists would do well to study it before defending their actions. Let’s read it, shall we? The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized. Now let’s examine the arguments of the establishment in favor of the Surveillance State: Argument #1: Mass Surveillance Has Been Going On For A Long Time And Is Nothing New Dianne Feinstein and Lindsey Graham, perhaps the most evil political duo since McCain and Lieberman, have both used the above talking point in order to rationalize the mass surveillance of FISA and PRISM. But let’s put this in perspective… Feinstein and Graham are essentially saying that because the government has criminally trespassed on our privacy for years, we should not complain when we discover that the invasion was a bit more elaborate than we had originally suspected. They are saying that because we allowed them to get away with taking an inch, we might as well allow them to get away with taking a mile. This is the logical fallacy of incrementalism, and tyrants use it in their arguments all the time. Despotism rarely establishes itself overnight. Rather, it slithers slowly into the midst of a society like a parasite, and carefully entrenches itself under our skin bit-by-bit so that we do not notice until it is buried so deep we fear removing it at all. A line must be drawn in the sand eventually. Past mistakes are not a license for future failures and future regrets, and anyone who claims otherwise is trying to take something away from you. Argument #2: If You’re Not Talking To Terrorists, Then You Have Nothing To Worry About Another debate point from the bottom feeding Lindsey Graham. First off, our Constitutional rights are not predicated on whether or not we are guilty of “terrorism”. Even a so-called terrorist is supposed to be protected under the Bill of Rights. The law is very clear, and this is not a negotiable position. Every American, regardless of government suspicion, has a right to privacy, and is protected from unreasonable search and seizure without probable cause. Period. Graham’s argument perpetuates the fallacy that the word “terrorism” is somehow a magical password that allows the federal government to bypass Constitutional barriers. I’m sorry to tell Lindsey that he is greatly mistaken. Secondly, the very foundation of a free society requires that every person be treated as INNOCENT until proven guilty. Mass surveillance twists this principle, so that all people are treated by the state as guilty until proven innocent. Such a system will inevitably generate a vast rift between the populace and the government because it designates the political elite as the “watchers” and the public as the “watched”. As history has shown us, the "watchers" always become the enslavers, and the "watched" always become the enslaved. I’m not sure why so many people, including U.S. senators, do not seem to grasp this concept. Argument #3: We Must Trust That The Government Is Using The Surveillance Apparatus For Good Barack Obama in defense of the leaked PRISM initiative and all encompassing NSA surveillance stated that Americans must simply “trust” that the federal system is using the data they have criminally harvested for the good of the country. That is to say, we should have “faith” in the White House. I’m sorry, but the Constitution was written exactly because governments are run by men, NOT benevolent gods, and men are notorious for abusing power. The Constitution exists because NO government can be trusted to act in a principled manner. We do not have to “trust” them because tight constitutional restrictions are in place to ensure that they aren’t given enough slack to become dangerous. When those restrictions are diminished, we get programs like PRISM… The checks and balances of due process and warrants are supposed to be absolutely public and transparent so that we can see, with our own eyes, that all is being handled justly and honorably. Mass surveillance in particular is an affront to the 4th Amendment because there is no conceivable way that warrants could ever be issued for the incredible volume of materials gathered, and therefore, there is no conceivable way that any legitimate judicial oversight is being enforced. Secret courts, secret charges, secret programs targeting entire subsections of the population, were expressly forbidden by the Founding Fathers as totalitarian in nature. In February of this year, Obama boasted during a Google Plus “Fireside Chat” that his was “the most transparent administration in history”. The ability of politicians to lie with sociopathic expertise is well documented, hence, my lack of faith. The government and the Obama White House in particular do not deserve our trust. Trust has to be earned… Argument #4: Surveillance Programs Are Essential To The Safety Of The Public At this point I find that anyone who still uses the “safety” position to justify the trampling of our freedoms is a lost cause. Years ago, when the surveillance grid was being put into place through legal chicanery, the common skeptic would insist that such subversive laws had not yet hurt anyone, and that the concerns of the Liberty Movement were “overblown”. Today, it’s no longer about theory. Our cultural pain is real, people are being targeted, people are suffering, and it’s only going to get worse from here on. And, as we warned a long time ago, the concept of “collective safety” would be the primary persuasion technique used to lead America further into oblivion. In a race to spin the leak of PRISM, lawmakers and establishment shills have come out in droves to suggest that the secret surveillance state has “stopped terrorist attacks” and “saved lives”. Of course, because all the details of the program are classified, we’ll never see any proof that such claims are true. What a conundrum. Frankly, I know enough about government sponsored terrorism to understand that even if PRISM thwarted an attack, our clandestine alphabet bureaucracy has created far more death and destruction than they have ever prevented. In the end, I couldn’t care less if PRISM stopped a terrorist act. The point is irrelevant. Our civil liberties are not subject to the supposed success of an unconstitutional government action. The promise of safety does not nullify our rights, nor does it give government capital to do whatever it pleases. Comfort Means Death I believe the establishment has moved away from the denial of so many abuses because it hopes to convince us that this is the “new normal” of our society. They want us to embrace the surveillance state and become comfortable in its cradling arms. I do not plan to get “comfortable”. When political villains no longer fear the exposure of their villainy, it is time to start worrying. There has been a lot of unrestrained conjecture on the motivations of the suddenly world-famous Edward Snowden. The fact is we still know very little about him, and for now I will reserve judgment; partially because I know that one day people like myself could be accused of “fomenting controlled opposition” or “working for the enemy”. Our culture has become so cynical that we refuse to believe that anyone does anything anymore out of a sense of principle. Whatever Snowden’s original intentions, I find his admitted reasons inspiring. When asked why he forced the truth of PRISM into the mainstream, Snowden replied: "I don't want to live in a society that does these sort of things ... I do not want to live in a world where everything I do and say is recorded. That is not something I am willing to support or live under…" "I'm willing to sacrifice all of that [career and former life] because I can't in good conscience allow the U.S. government to destroy privacy, Internet freedom and basic liberties for people around the world with this massive surveillance machine they're secretly building." "My sole motive is to inform the public as to that which was done in their name and that which is done against them…I understand that I will be made to suffer for my actions. I will be satisfied if the federation of secret law, unequal pardon and irresistible executive powers that rule the world that I love are revealed even for an instant." The surveillance machine is the key to control. When each person feels the eyes of the state constantly upon them, dissent and rebellion becomes unthinkable. At the very least, those of us who are aware of the great Orwellian shift before us must take an immovable stand. The right to privacy is an inherent right of natural law. No individual or government system should be allowed legal precedence to invade my privacy, and all people have the right to be treated as innocent until proven guilty rather than guilty until proven innocent. As an individual, I do not owe the collective, or the government, a constant update on whether or not I am a "threat". In fact, I don't owe anyone anything. If someone continues to treat me as an enemy and constantly tramples my natural right to privacy, I am going to fight them, and I am going to hurt them, perhaps mortally. This is what people who support surveillance society need to understand; there will be consequences for their trespasses against the natural rights of others. There can be no negotiation. There can be no compromise. The surveillance state must be erased. |
06-13-13 | THESIS | |
PRISM-5 - The Sacrifice it Takes to be A Government Whistleblower NSA Whistleblower Reveals Himself 06-09-13 Zero Hedge
- Edward Snowden, 29, PRISM Whistleblower The US government will be happy to learn it will save several million dollars on the criminal inquiry into the identity of the NSA's PRISM whistleblower because moments ago in a lengthy profile by the Guardian's Glenn Greenwald, said whistleblower has decided to reveal himself to the world: he is Edward Snowden, 29 years old. Originally from Elizabeth City, NC, a Maryland community college dropout and former Special Forces trainee, the 10 year "veteran" with the NSA, most recently in its Hawaii office under the employ of defense contractor Booz Allen Hamilton, has just made history and joined the pantheon of such legendary whistleblowers of the US government' secret activities as the Pentagon Papers' Daniel Ellsberg and Wikileaks' Bradley Manning. Last but not least, Edward is currently residing in Hong Kong, out of harm's (read America's) way. Who is Edward and how did he end up at the NSA? The Guardian has the full story.
Why did he wait so long?
That did not happen. So he proceed to reveal what he knows about the NSA to a newspaper which the NYT pejoratively referred to as a "British News Site." Well, he certainly did not go with any of the news sites on favorable terms with the current administration. Instead, "He purposely chose, he said, to give the documents to journalists whose judgment he trusted about what should be public and what should remain concealed." Which of course brings up the question: now what, and why risk what was otherwise a "comfortable life" in a Hawaiian paradise?
That said, he has left the US and is now in Hong Kong, which in the New Normal is a safer venue for those exposing what until recently was considered a massive conspiracy theory.
Snowden's future is bleak to say the least, and if Bradly Manning's recent travails are any indication, a life in prison may be an upside option:
Now the great debate begins: is sacrificing it all in the name of ethical principles under a totalitarian regime now fully set on destroying you, worth it? And since we are dealing with one grand revealed conspiracy, another one will naturally emerge: is Snowden's explanation of his motives honest and accurate? Why now and why him? Surely at least one other person has worked at the NSA in the past decade whose thought process has been identical and who put the value of democracy over and above that of one's personal career development and safety. Most importantly, the ball is now in Obama's court, and the constitutional scholar's every action will be studied under a microscope by civil liberty defenders (both real and paid for) everywhere while one Jon Corzine withdrawls millions of dollars from East Hampton ATM machines unhindered, and without any scruples. Finally, we would like to thank Snowden for putting a nail into the coffin of all those who use the term "conspiracy theorist" pejoratively. Because whatever his motives, whatever the outcome of this dramatic escalation between the people's right to know and a government intent on hijacking all civil liberties one by one, Snowden has showed that the distance from Conspiracy Theory to Conspiracy Fact is just one ethical judgment away. For those curious, here is the full text of the US-Hong Kong Extradition treaty. * * * Snowden's interview with the Guardian's Glenn Greenwald (produced by WaPo's Laura Poitras) can be seen after the jump. |
06-10-13 | THESIS | |
2012 - FINANCIAL REPRESSION |
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DEBT DEATH SPIRAL - Now Below the Event Horizon The Smoke And Mirrors Are Running Out 06-11-13 Monty Pelerin's World blog via ZH Those who believe the economy is recovering are ignorant of the facts. Other than the Great Depression no US recovery (and I don’t believe we are in a recovery) taken longer. Eventually it may take more than a decade like the 1930s. Or perhaps it will be like Japan which is in its third decade of “recovery.” Politics and Economics The truth is that our economy is spent, exhausted and filled with misallocations and distortions made much worse by government interventions. There is no recovery, nor will there be one until a massive purge (usually referred to as a depression) occurs. This event will result in bankruptcies that release scarce, misallocated physical capital from unproductive and unwanted areas to places where it is needed and can be utilized efficiently. Rather than allow this pre-condition to an economic recovery and a growing, efficient economy, politicians want to prevent it. They use smoke, mirrors and propaganda (lies) to hide the reality of our sick economy. Their obfuscations continue, but the effective life is limited. What politicians do to the country beyond their term in office means nothing to them. Their concern is only for themselves and the short-term that exists between elections. As a result they rob from the future to hide the true conditions of the present. Those still unborn will be paying for their criminal economic charade. Economic Conditions So how bad is the economy? Michael Shedlock, “Mish” is among the more prolific as well as more incisive financial analysts on the web. His site is always worth reading, but a recent post is essential. To impress upon you the seriousness of the situation and to encourage you to read his post, I quote some of his points (anything in red is my emphasis):
In terms of debt and inflation, Mish determined that:
The debt to GDP ratio reached the highest in history just before the 2008 collapse. It remains in this record territory and is just as unsustainable now as it was in 2008:
Consumers reduced their debt levels, although probably not enough. They are still strapped with more debt than many can properly service. Consumption, as a result, has dampened as more income goes to debt service and less debt is added. That appears to be a condition that should prevail for several more years. Remember, the announced reason for the loose Fed policy was to drive consumption. As Mish observed:
Obviously, it has not worked. Read Mish’s article to view most of his observations in chart format. Desperate Government Although Mish does not make this point, I believe it is a relevant one. Government continues to borrow and spend in an effort to hide the truly rotten condition of the economy. This action was begun under the guise of stimulating a recovery. It is obvious that it has not worked. It was obvious to some that it could never work. Despite its obvious failure, theft from future generations continues. There are two main reasons for this, in my opinion:
Government has exhausted its faux solutions. Nothing they do, except reduce spending, can help the economy. Reducing spending means another Great Depression and the exposure of the economic scam they have been running. Thus, spending will likely continue as will the Federal Reserve enabling, euphemistically called quantitative easing. A Fly In The Ointment There is a limit on how long the fraud continues. The government is in what is known as a debt death spiral. They must borrow money to repay prior debts. It is as if they are using their Visa Card to make an American Express payment. The rate of new debt additions dwarf any rate of growth the economy can possibly achieve. The end is certain, only its timing is unknown. Once interest rates begin to rise, and they will, it is game over. Short-term Treasury interest rates are normally 3% with no inflation. In an inflationary environment, a premium for expected inflation is tacked on to that 3%. Under today’s conditions, ST Treasuries could easily rise to 6 – 9%. The low end of the range represents a rise in rates of more than 5.5%. If the debt outstanding, most of which is short-term, is $17 Trillion, that would been a rise in interest expense of close to a Trillion dollars annually. That would be added to deficits which are expected to be around a Trillion dollars per year. The high end of the range would produce a deficit in excess of $2.5 Trillion per year. At the low end of the interest rate range, deficits would exceed more than 10% of GDP, putting us right up there with the sick European countries. At the high end, we would be like Greece without its glorious history and climate. It gets worse than the above numbers convey. When interest rates rise, the economy will contract and probably severely. Then cries for more stimulus would be heard. An additional Trillion dollars or so would likely be added to the deficit, although many would want multiples of that. In either case, we become Greece on steroids. Another Fly In The Ointment There are those who say the US government cannot go broke because it has a printing press. They argue that the level of deficits don’t matter because the US can just print more money. Monetary fraud, which this is, also has a limit. Only paper and ink limit the amount of currency the government can print. However, government does not control the value of the money which is determined by the public. Printing money depreciates the value of money (otherwise known as inflation). Market forces (economic actors) determine what this value is via supply and demand interaction. When money is expected to buy less tomorrow than it does today, people will spend it sooner. This drives inflation even higher. Ludwig von Mises described this end phase as a crack-up boom:
Mises spent much of his life studying money, the business cycle and inflation. He correctly identified the choice that now stands before our political class (my emboldening added):
In the event of the total catastrophe, savings and fixed income become worthless. The middle class of a country is wiped out in terms of wealth. Poverty abounds except at the top where those with large wealth and insider information are able to protect themselves and enhance their real wealth. Inflation does not destroy wealth; it merely redistributes it. How Does It End? Neither ending is attractive, but opportunities for one or the other have been squandered. Sadly, the decision as to which route is taken is in the hands of our criminal political class. Their behavior suggests that they will do whatever it takes to continue the charade. They want to maintain their scam for as long as they can.. If they are successful, a crack-up boom is coming. History shows this ending in most all countries in our condition.
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06-11-13 | THESIS | |
2011 - BEGGAR-THY-NEIGHBOR -- CURRENCY WARS |
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CURRENCY WARS - A Major Shift "Tapering" From Currency-Wars To Interest-Rate-Wars 06-12-13 Citi's Steve Englander via ZH "The opposite of currency wars is not necessarily currency peace; it can easily be interest rate wars," is the warning Citi's Steve Englander sends in a note toda, as EM and DM bond yields have relatively exploded in recent weeks. The backing up of yields represents an increase in risk premium, so this will likely have negative effects on asset markets and the wealth effect abroad as well. It is difficult to explain the magnitude of the yield backup in terms of normal substitution effects, and broadly speaking, if you were to compare the backing up of bond yields with the beta of the underlying economy and asset markets there would be a good correspondence. So, Englander adds, it is fear, not optimism that is driving bond markets. Via Steven Englander,
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06-14-13 | THESIS | |
2010 - EXTEN D & PRETEND |
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THEMES | |||
CORPORATOCRACY - CRONY CAPITALSIM | |||
THE REALITIES OF "TOO BIG TO FAIL!" Politics is ablout Power and It's Mother Milk: Money! |
CRONY CAPITALISM
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GLOBAL FINANCIAL IMBALANCE | |||
SOCIAL UNREST |
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CENTRAL PLANNING |
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STANDARD OF LIVING |
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CORRUPTION & MALFEASANCE | |||
NATURE OF WORK | |||
CATALYSTS - FEAR & GREED | |||
GENERAL INTEREST |
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Tipping Points Life Cycle - Explained
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